Covered bond market participants were in wait-and-see mode this (Thursday) morning as the lower house of Germany’s parliament held a vote on an expansion of the European Financial Stability Facility, which ultimately yielded a large majority in favour.

German Chancellor Angela Merkel

A syndicate official said that despite there having been no new issuance today, there were signs of buying interest. He said prices had been marked tighter since rumours of a second European Central Bank covered bond purchase programme began on Monday, but there had not been much buying.

“As we saw on some of the deals, investors were not that bullish on buying,” he said. “But we’re starting to see some encouraging buying now.

“The tone in general is still quite cautious,” he added.

Spreads have broadly stabilised in the covered bond market and some have tightened since reports of European Central Bank purchases possibly restarting, according to RBS research. Spreads do, however, remain significantly wider on a one-month basis, it added.

The syndicate official suggested issuers will likely want to wait until the end of a meeting of the ECB’s governing council next Thursday when market participants expect more clarity on rumours of a second covered bond purchase programme. However, an analyst yesterday suggested that a covered bond for Helaba was “imminent”.

“Perhaps a couple guys will come to the market before then,” added the syndicate official. “If you’re a French or a German guy, it doesn’t much matter what the ECB does.

“If you’re French, you might tighten 10bp and German, 5bp.”

Another syndicate official expected a window next Tuesday and Wednesday.

“In that short window it’s probably only a core issuer that could go forward,” he said.

He also said confidence was slowly returning to the market.

“What we’re seeing is confidence coming back but investors are still quite hesitant to throw in that money,” he said. “Some of the big guys are playing but not to the size you’d expect.

“The window is not as open as it was before the summer break.”

RBS said the issuance window from this week could prove short-lived if there is disappointment at next Thursday’s ECB meeting.

But RBS remained “optimistic that a re-opening of the covered bond purchase programme will be part of the wider policy response”.